posted on Oct, 30 2009 @ 03:35 AM
Now, I will explain a variety of issues and questions exposed by the above set of values.
For the benefit of those who wish to delve to the heart of the matter, here are the basic reasons why you would tax wealth not production - why it is
in the interests of social justice, and beneficial to the economy.
Many rich individuals today did not accumulate their wealth personally; it was passed on to them by an ancestor, whether through production, genius or
discovery. Is their wealth a reflection of their benefit to society, of their own genius, production or discovery? Or is it more correct to say that
they are simply free loaders on their ancestral success and that they could possess the skills and ingenuity of a windup toy and still retain a
preeminent place in society and business? Obviously, it is the latter.
Likewise, many large corporations are more historical relics than useful and vibrant competitors in industry. Their large size, market share,
monopolies, and influence are more directly credited with their ongoing existence than any innate business capability. For a classic case in point,
the investment banks that received huge bailouts by the public – can we really say they are the cream of business? Or does their existence rely
more on their political influence and monopoly? Again, the question is rhetorical.
We should then ask ourselves, why is it that Joe Average is paying all the taxes for society, but the benefits seem to be delivered to special
interests whose share of the tax burden is minimal at best, and in the worst cases they actually appropriate huge sums from the public purse? Goldman
Sachs is a nice case in point.
The answer is because the principles of taxation are flawed, and in no subtle way – rather in glaring and obvious opposition to the principle of
social justice and fairness. Furthermore, taxing productivity is clearly counter intuitive – when the basis for economic strength is production.
Why would you put a brake on the driving force of an economy?
So, let us then move on to more practical questions of the impact of altering the basis of taxation from production to wealth – what is going to
happen? What impacts would it have?
Before moving on to the impacts, it is important that I define what is meant by gross assets. This is the total value of assets under a person’s
control. Debt is ignored, it is not a factor – it is not deducted. The justification for this is simple, if it was allowed then individuals or
businesses could use complex leveraging methods to drop their net assets to close to zero – sidestepping the system. This simple rule would prevent
that kind of trickery.
It is also worth noting that the owner of a mortgage is the person who ‘owns and controls’ the underlying real estate. This would place lenders
in rather a quandary – it is likely they could not afford to hold the mortgages, so they would likely surrender the titles to the owners. This
would mean they would no longer be able to foreclose – the impact on society would be beneficial. They still could sue through civil court, but
they could not kick you out of your home.
What impact would these changes have on individuals? Well, for the most part the change would be a dramatic reduction in tax. In the case of people
who have not purchased any real estate, the likely impact is that they will not be paying taxes. Assets could be divided with a spouse, meaning a
family is able to own assets up to $200k and not pay tax. Houses and vehicles depreciate – so a house older than 20yrs, or a vehicle older than
10yrs attract no tax – with a sliding scale from new to end of life tax valuation. For all families this is likely to mean a huge saving in taxes.
For those at the other end of the scale, they would really need to make their money work. That means it would need to be injected into the most
effective businesses and investments that are making profits. Large yacht’s and palatial mansions create no income, so you would expect a cut back
on luxuries and an increased focus on investing their money wisely. That should mean an improvement in the economy.
As for tax deductions – well there is a whole range of things that could be done. Giving property away to family members would be fine, so long as
they really are going to have use of it – otherwise its fraud. This would mean that philanthropy would have economic advantage, and there would be
a real stimulus to share the wealth. Donating to the local community, scholarships, libraries and so on – all tax deductable. I would however set
a limit on the amount of tax deductions available – or it is open to abuse. Not all would use these avenues though, and tax revenues from the top
5% of the population, who hold 95% of the wealth, would provide an incredible amount of tax revenue – like has never been seen before. In the wake
of a change like this, the public coffers would be over flowing.
Over time, those who inherited wealth, but were not in the same order of genius as those who first accumulated the fortune would slowly lose their
privileged position, and the gap between rich and poor would be narrowed. Those however who retained the vital spark of energy that created the
fortunes in the first place, would manage to maintain their wealth. In the end, private fortunes can still be considerable, (using the table values I
produced as an example) up to $100mill still only attracts 15% tax, and 15% returns are certainly an achievable (though challenging) target.
Billionaires on the other hand would likely come unstuck – and I feel that those levels of wealth are clearly excessive, and not aligned with a
healthy social structure.
As for business – small would clearly be better. The focus would shift from growth, to efficiency. That paradigm shift must have positive social,
economic, political and even environmental impacts. Large corporations would simply find themselves ‘too big to survive’ – and they would have
to break into smaller units.
This would erode or hopefully destroy their unfair advantages and influence; it would also create niches for specialized service industries. As
businesses divested themselves of as much overhead as possible, then small businesses specializing in human resources, accounting, engineering,
logistics and so forth would spring up to service them. Due to size being a deterrent, then small efficient businesses would fare best.
A spin off benefit for industry is that manpower costs would decrease, because no tax would be applicable, and unskilled, and semi skilled labor would
likely be very cheap (even though these people would themselves have a net increase in income due to no tax).
The largest and most obvious benefit to everyone would be the reemergence of competition as a source of innovation and efficiency in the market place.
As the great whale’s founder and sink, so the schools of agile smaller fish would swarm with cunning and agility.
One issue that is also worthy of elaboration is the issue of industry that by its nature requires a very large asset base. Such industries are;
mining and resources, heavy industry – such as aircraft, heavy vehicle and train manufacture and a variety of other similar industries. Industries
of this type can almost always be classified as ‘strategic’ for the economy concerned. They are so large and vital that whole cities or large
towns may depend on them. Therefore in those cases, it would not be extra ordinary for the government itself to be a large shareholder. This would
allow the business to decrease its asset footprint, and also allow the government (and hopefully that means the people) a voice in the management and
direction of those strategic industries on which large populations may be dependent.
(Continued next post - )